SMIC settles dispute for US$175m

PATENT CASE The Chinese company agreed to pay the money to TSMC in yearly installments for the next six years, while TSMC agreed to drop its remaining lawsuits

BLOOMBERG AND AFP , TAIPEI

Semiconductor Manufacturing International Corp (SMIC, 中芯國際集成電路), China's biggest supplier of made-to-order chips, agreed to pay US$175 million to settle a patent dispute, lower than some estimates. The settlement with Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) will delay SMIC's profit announcement, scheduled for release yesterday, by as much as six weeks, the Shanghai-based company said in a statement.

Under the settlement terms, SMIC will pay TSMC US$30 million in each of the next five years and US$25 million in the sixth and final year of the settlement.

The two parties also agreed to cross-license each other's patent portfolio through to 2010, TSMC said in a statement.

"With this settlement, we have amicably resolved all of our pending litigation with SMIC," said TSMC deputy chief executive Tseng Fan-cheng (曾繁城). "We believe it is in the best interest of our shareholders."

TSMC said it has agreed to dismiss all pending legal actions between the two companies in the courts here and in the US and at the US International Trade Commission.

Officials from both companies declined to give details on the patents involved.

"The settlement charge is clearly lower than our earlier estimate of US$730 million," said Andrew Lu (陸行之), an analyst with Citigroup Global Markets in Taipei. "This is good news."

SMIC yesterday reported sales in the three months ended Dec. 31 doubled to US$292 million from a year ago, surpassing revenue at Singapore's Chartered Semiconductor Manufacturing Ltd (特許半導體) for a second quarter.

Fourth-quarter factory use was 95 percent, in line with its earlier forecast. Sales for this year will continue to grow, the company said.

``The settlement is good from TSMC's standpoint in that the legal process has worked," said Dan Heyler, an analyst with Merrill Lynch & Co in Hong Kong.

TSMC chairman Morris Chang (張忠謀) said "the payment is acceptable despite not being satisfactory."

Press reports had put the expected payment in a range of US$300 to US$600 million, suggesting TSMC might have arrived at the settlement under pressure from the Chinese authorities. But Chang flatly denied these reports.

TSMC said on March 24 last year that a witness estimated 90 percent of SMIC's technology for making chips with 0.18 micron spaces between transistors was copied from TSMC. The Taiwanese chipmaker produces its most advanced chips with 0.09 micron technology.

SMIC, founded by Richard Chang, a Taiwanese executive who spent 20 years at US chipmaker Texas Instruments, has lured away customers of TSMC and United Microelectronics Corp (UMC, 聯電) by offering lower prices.

TSMC and units TSMC North America and WaferTech filed a complaint in a US district court in December 2003 against SMIC and unit SMIC Americas, alleging that SMIC improperly obtained TSMC trade secrets and infringed TSMC patents.

The complaint stated that SMIC hired away more than 100 TSMC employees and asked some of them to disclose the TSMC trade secrets.

The suit also alleged that one SMIC official asked a then-TSMC manager to obtain TSMC process technology information for SMIC.